Sellers may benefit by offering a land contract, which may cause their home to sell faster and put extra cash in their pockets from accrued interest. Land contracts can be beneficial for buyers as well, especially those who are credit challenged. Buyers whom lending institutions have turned down may be warmly welcomed by sellers offering land contracts, although often a buyer will pay the price in tougher contract terms.

What It Is

A land contract is a type of seller financing in which a seller holds title to a property until the home is completely paid in full. If you have less than perfect credit, a land contract allows you to bypass the lending institution altogether and buy the home directly from the seller through installment payments. Much like a traditional mortgage, a land contract will require a down payment, have an annual percentage rate, and be amortized over a certain number of years.

Poor Credit Buyers

Most purchasers who engage in seller-financed arrangements are credit challenged. Because many sellers don't require stringent loan qualifying like a bank or mortgage company, these types of contracts are ideal for those with less than perfect credit. The idea is for a purchaser to begin making the monthly payments to the seller while repairing credit issues, in the hopes of purchasing the home outright in the near future.

Tougher Terms

Because most buyers will have less than perfect credit in land contract deals, many sellers will be tough on contract terms. Elements such as the interest rate, purchase price and down payment may be higher than with conventional lenders. You may feel pressured into accepting terms or a purchase price that you aren't comfortable with, but it may be better to hold out until you can negotiate terms you can live with, or find a different home.

Balloon Payment

The seller may demand a balloon payment after only a few years. This is a lump sum payment of the balance of the loan, and usually is required within five to seven years after the loan commences. Buyers are typically expected to either obtain traditional financing by the time a balloon payment is due, or pay the house off with cash. You will need to be diligent in repairing credit issues before the payoff date so you can purchase the home before a balloon payment is required -- typically the down payment and monthly payments are non-refundable in the event you aren't able to buy when the time comes.